Slowing the Money Train

By ADAM BRYANT

Published: November 8, 1998

WHAT will slow the rise in executive pay?

A bear market would help, many experts say, because shareholders would start voting down management plans for issuing shares to reward top executives and other employees. Even now, votes against such proposals are rising.

Generally, experts say, the key is for directors to act more like shareholders. Charles M. Elson, a Stetson College law professor who serves on three corporate boards, argued that director nominees should be required to buy a considerable amount of company stock -- say, $100,000 worth -- before joining a board and then be compensated with stock for their services.

Then, Mr. Elson said, directors will consider the company's money their own and be more likely to resist a chief executive who wants an unreasonably large share of it.

''That way, any penny that is overpaid comes out of the director's pocket as opposed to some vague force known as the company,'' he said. The amounts involved, he acknowledged, may amount to no more than pennies a share, but people nevertheless have a keen sense of what is rightfully theirs.

Mr. Elson has seen the process work first-hand. When he was appointed a director of the Sunbeam Corporation in 1996, he was required to invest $100,000 of his own money to buy 5,000 shares in the company. Indeed, Mr. Elson had advised Albert J. Dunlap, then Sunbeam's chief executive, to impose the requirement on all his directors.

With the additional compensation he received in Sunbeam stock in subsequent years, the total value of Mr. Elson's holdings rose to $250,000. But after the company foundered earlier this year under Mr. Dunlap's leadership, the value of Mr. Elson's holdings fell steeply, to less than $50,000 at one point.

And it was Mr. Elson who, in June, made the motion to the Sunbeam board to remove Mr. Dunlap. The Sunbeam board has been widely reported to be fighting with Mr. Dunlap over his severance pay.

''Having a large equity stake in a company,'' Mr. Elson said, ''really wakes you up.''